Question
At December 31, 2025, Kelmscott Mining tests a machine for impairment (IAS 36). Before the test, the machine’s carrying amount is $80,000 after the current-year depreciation charge of $10,000. Its recoverable amount is estimated at $62,000.
| Date | Event |
|---|
| December 31, 2025 | Recorded the annual depreciation of $10,000. |
| December 31, 2025 | Recognised the impairment loss (carrying amount $80,000 vs recoverable amount $62,000). |
Required: Prepare the depreciation entry and the impairment entry. The impairment loss is $80,000 − $62,000 = $18,000, credited to Accumulated Depreciation - Equipment.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 16 — Property, Plant and Equipment
Depreciation spreads the depreciable amount — cost less residual value — over the asset's useful life. Establish the depreciable amount, the method and the period of ownership within the year before computing anything; a mid-year acquisition or disposal is charged only for the months held.
Common mistakes
- Deducting residual value under the reducing-balance method, where the rate applies to carrying amount instead.
- Charging a full year on an asset bought or sold part-way through the period.
- Continuing to depreciate an asset once its carrying amount has reached residual value.
Further readingStraight-line depreciation, worked